June 21: Despite the improvement in the external sector indicators of the economy, Nepal Rastra Bank (NRB) has indicated that it will continue with the tight monetary policy in the upcoming fiscal year (FY).

NRB is still under pressure as inflation is still above the target limit. As the world economy has not yet improved, NRB is preparing to continue the tight policy fearing that an expansionary monetary policy will relax economic activity resulting in pressure on reinvestment situation, and foreign exchange reserves.

NRB has set the deadline of June 26 for collecting suggestions for the monetary policy from stakeholders and is preparing to release the monetary policy by the third week of July.

NRB Governor Maha Prasad Adhikari has been saying in public functions that the central bank will not be as lenient as it was in the past and there will not be any concessions and facilities like that in the past.  He has hinted that the monetary policy will be tightened in the upcoming fiscal year.

Speaking at a recent program, Governor Adhikari made it clear that the facilities given for revitalizing the economy affected by Covid-19 cannot be provided again.

“The side effects of the facilities given to improve the economy affected by the Covid-19 pandemic are starting to surface now. Therefore, corrective measure is necessary. The same facilities cannot be given again,” he said.

In order to revive the Covid-19-affected economy, NRB had adopted a flexible and expansionary monetary policy in FY 2077/78 and 2078/79. As a result, the cash flow in the market increased and the economy became vibrant, but the investment was used in unproductive sectors and imports, and the indicators of the economy turned negative. Therefore, the NRB changed its policy in the current fiscal year.

An official of NRB said that in the upcoming monetary policy, there will be concession programs for specific sectors rather than providing facilities to everyone.

A senior official at NRB said, “It is not possible to give inclusive concessions to everyone like in the past. After assessing the impact of the decline in economic activities, concession programs can only come for the areas that are in trouble.”

In the third quarter review of the monetary policy for the current fiscal year has provisions for restructuring and rescheduling loans as well as re-financing facilities for borrowers associated with economic sectors that have been experiencing negative growth for the last two quarters. According to the review, NRB issued instructions to banks, financial institutions to reschedule loans for hotels and restaurants, animal husbandry, construction sector and loans up to 50 million in all other sectors on the basis of need and justification by analyzing the cash flow and income of the industry/business at the request of the debtor.

For this, the condition is that the loan should be in the active category till March and 10 percent of the outstanding interest should be paid.